Delaware, Lackawanna & Western Railroad v. Pennsylvania
Headline: Limits state tax power by reversing Pennsylvania’s rule that included out-of-state coal in a company’s capital-stock valuation, blocking states from taxing property located and taxed in other states.
Holding: Including coal located and taxed in other States in Pennsylvania’s valuation of a company’s capital stock unlawfully taxed out-of-state property and violated the Fourteenth Amendment, so the state court’s judgment was reversed.
- Stops states from taxing tangible property permanently located in other States via capital-stock valuation.
- Requires exclusion of out-of-state property when valuing corporate capital stock for state taxes.
- Protects companies from indirect taxes that would take property without due process.
Summary
Background
A Pennsylvania coal company had coal that was mined in Pennsylvania but then transported to other States and was resting there awaiting sale. Pennsylvania valued the company’s capital stock for taxation without deducting the value of that coal, and the state court upheld that method based on prior Pennsylvania decisions.
Reasoning
The Supreme Court examined whether including the out-of-state coal in the capital-stock valuation amounted to taxing property beyond Pennsylvania’s authority. At the time of the appraisement (in November 1899) the coal was outside Pennsylvania and was being taxed by the States where it rested. The Court concluded that counting that coal in the capital-stock value was, in substance, a tax on property outside Pennsylvania and therefore an unlawful taking without the procedural protections of the Fourteenth Amendment.
Real world impact
The decision requires Pennsylvania (and similarly situated States) to exclude tangible property permanently or effectively located in other States when valuing corporate capital stock for state taxation. Companies that had property shipped and held for sale elsewhere cannot be taxed by their State of origin on that out-of-state property through capital-stock valuations. The ruling protects owners from indirect taxation that would amount to taking property without due process.
Dissents or concurrances
The opinion notes that the Chief Justice dissented, but the Court’s majority reversed the state court and sent the case back for proceedings consistent with this opinion.
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